Naohiro Ogawa Nihon University Population Research Institute Tokyo, Japan

1. Population Aging, Changing Labor Income Profiles and Intergenerational Transfers in Japan and Other East Asian Countries Presented at International Workshop on Population Ageing and the Labour Market, at the University of Waikato, February 2-3, 2012 Naohiro Ogawa Nihon University Population Research Institute Tokyo, Japan

2. Since the turn of the 21st Century, population aging has been rapidly emerging as a major demographic worldwide trend.

3. Declining Fertility The most important demographic source of population aging at an early stage

4. Annual number of births by sex in Japan, 1910-2010 (Million persons) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year Men Women 2010

5. Is it too late? Japanese Government was aware of it! Total fertility rate (TFR) and ideal family size, Japan, 1947-2010 Not many people know it! (Children) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 Year TFR Ideal family size

6. Number of pets and children and size of pet-related total market, 1994-2009, Japan Number of pets and children(Millions) Pet-related total market (Trillion yen) 30 1.2 1.0 25 0.8 20 0.6 0.4 15 0.2 10 0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year Children Cats and dogs Pet-related total market (2008 is an estimated figure.) Sources: Data from Statistics Bureau, Ministry of Internal Affairs and Communications, Yano Economic Institute, and Pet Food Association.

7. Water for humans Water for pets 2ℓ100yen 2ℓ900yen

8. Declining Mortality Increasingly important demographic source of population aging at a later stage, particularly when e0 exceeds 70 years

9. Modal age at death in Japan, 1947-2009 (years) 100 90 80 70 60 50 40 30 20 10 0 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 Year Men Women Calculated by the authors using data from Human Mortality Database. University of California, Berkeley (USA), and Max Planck Institute for Demographic Research (Germany). Available at www.mortality.org or www.humanmortality.de (data downloaded on January 25, 2011).

10. Annual growth rate of population by five-year age groups in Japan （%） 20 15 10 5 0 -5 -10 1920-25 1925-30 1930-35 1935-40 1940-45 1945-50 1950-55 1955-60 1960-65 1965-70 1970-75 1975-80 1980-85 1985-90 1990-95 1995-00 2000-05 Year 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100+ Source: Statistics Bureau Ministry of Internal Affairs and Communications, Japan (various years a) Population Estimates. Statistics Bureau, Ministry of Internal Affairs and Communications, Japan (various years b) Population Census.

11. Australia 35 Austria Belarus Belgium Bulgaria Canada Chile Czech Republic Denmark Estonia 30 Finland France Germany Hungary Iceland Ireland Israel Italy Japan 25 Lithuania Luxemburg Latvia Netherlands Norway New Zealand Poland Portugal Russia 20 Slovakia Slovenia Spain Sweden Switzerland Taiwan Ukraine United Kingdom 15 United States Republic of Korea 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Female life expectancy at age 55 ― international comparison (Years) Year (2) Statistics Korea, “Abridged life tables”, (http://kosis.kr/eng/database/database_001000.jsp?listid=B&subtitle=Population,%20Household), accessed on May 4, 2011.

12. Since 1840 the average life expectancy in the longest-lived countries has improved steadily – rising by three monthsevery year. And that growth continues to this day. (From 50 Facts that Should Change the World by Jessica Williams.) Each dayJapanese life expectancy will grow by 6 hours!

13. Aging of pets Dogs Cats 9.9 5.1 Source: Hideki Hayashidani (2005) “Changes in average lifespan and causes of death of cats and dogs (Inu to neko no heikinjumyo to shiin no henka)”, Aigan Dobutsu (Pet animals) (in Japanese), Japan Pet Care Association, No. 181 (January), pp. 10-11.

14. Economic Growth Performance and Social Security System

15. 30 25 20 Pension and welfare 15 Medical costs Pension 10 LTCI Welfare and other expenditures 5 0 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 Social security expenditure as percentage of national income in Japan, 1951-2008 (%) (%) 2004 pension reformIntroduction of macroeconomic indexation, with temporary modifiers (changes in the number of participants and beneficiaries’ life expectancy) Initiation of Long-term Care Insurance 1985 pension reformcompulsory coverage of dependent spouses of employees Implementation of “the Gold Plan” Free medical care services provided to those aged 70 and over(“Year One of Welfare”) Establishment of universal coverage of medical servicesand pension Year Year Source: National Institute of Population and Social Security Research (2010) The Cost of Social Security in Japan FY2008.

16. Value Shifts and Living Arrangements

17. Trends in values and expectations about care for the elderly: Japan, 1950-2010 (%) 90 1986: Promotion of in-home care of the elderly Attitude toward support of aged parents“Good custom” and “natural duty” 80 70 1961: Establishment of universal coverage of medical and pension programs Proportion of those aged 65+ living with children 60 50 40 30 Old-age dependence on own children“Expect to depend on children” 20 10 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year Sources: (1) Mainichi Daily Newspapers Population Problems Research Council, ed., 2000, Population of Japan (Report on the First to Twenty-fifth rounds of National Survey on Family Planning, Tokyo: Mainichi Daily Newspapers Population Problems Research Council. (2) Mainichi Daily Newspapers Population Problems Research Council, ed., 2005 Report on the First Round of the National Survey on Population, Families and Generations, Tokyo: Mainichi Daily Newspapers. (3) Nihon University Population Research Institute, 2007 and 2010, First and Second Rounds of National Survey on Work and Family. (4) Ministry of Health, Labour and Welfare, Japan, various years, Basic Survey Report on Health and Welfare. Ministry of Heath, Labour and Welfare, Japan, various years, Basic Survey of Living Conditions of the People.

18. Warning signs • United States: • Record increases in Medicare costs • Concerns about stock market “meltdown” • Japan: Taxpayer revolt threatens public pension system

19. Changes in the proportion of those who made contributions to the National Pension Scheme (%) 100 90 80 70 60 50 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year Source: Social Insurance Agency, various years, Press release on National Pension Schemeの加入・納付状況. Ministry of Health, Labour and Welfare, 2011, Press release on FY 2010 の国民年金保険料の納付状況と今後の取組等について.

20. An innovative approach to analyzing some of the aging-related problems: National Transfer Accounts (NTA)

21. Basic Features of the National Transfer Account (NTA) Project ●union of macro-level (public) and micro-level (familial) data ●interplay among various age groups (age-specific) ●consistent with the System of National Income Limitations: no consideration on gender and time use

22. NTA Member Countries 40 countries as of January, 2012 (including 4 future member countries） Institute for Futures Studies East-West Center (EWC) Nihon University Population Research Institute (NUPRI) Center on the Economics and Demography of Aging, CEDA African Economic Research Consortium (AERC) Economic Commission for Latin America and the Caribbean (UN-ECLAC )

23. The Economic Lifecycle Japan’s Most Important Graph Labor income Consumption Private consumption

24. Estimating age-profile of labor income • Data from NSFIE (1984,1989, 1994, 1999, 2004, 2009) Paid employee’s household: -Household head and his/her annual labor income -Other household members →allocated by regression Self-employed -2/3 of mixed income from the National Income Account (Gollin, 2002) -Allocating on the basis of age-profile of labor income for paid employee households

26. Estimating age-profile of private consumption • Split method(Engel method, Rothbarth method, Ray’s method) • Education • Health • Others (durables, housing, etc)

27. Private and Public Consumption • Education (regression using micro-level data for private consumption, while public educational costs are computed from macro data) • Health (similar to the case of education) • Current consumption • Durables, housing, others

28. Equivalence Scale Formula (A priori)for private consumption a(a) = equivalence scale of age group a

29. Composition of total consumption for Japan in 2004

30. （Million yen） 5 Labor income 4 (Million yen) 5 Labor income 4 3 Consumption （Public and private) Consumption (public and private) 3 2 1 2 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age 1 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Japan’s Most Important Graph(Per-capita lifecycle)

31. Age profile of per capita lifecycle deficit, Japan: 2004 (Million yen) 5 4 3 2 1 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ -1 -2 -3 Age Age-specific profile of per capita consumption and labor incomeJapan: 2004 (Million yen) 5 4 Surplus 3 Deficit 2 Deficit 1 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age

32. Age specific profile of per capita consumption and labor incomeJapan: 2004 (Million yen) 5 Age specific profile of per capita consumption and labor incomeJapan: 2004 4 Surplus (Million yen) 5 3 Deficit 2 4 Deficit 1 3 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age 2 Age profile of per capita lifecycle deficit, Japan：2004 1 (Million yen) 5 4 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ 3 -1 2 1 -2 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ -3 Age -1 -2 -3 Age Total Reallocations: Lifecycle Deficits Public & familial transfers Asset reallocations Asset reallocations

33. 6 5 4 Million yen (measured in 2000 constant price) 3 2 1 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ Age Figure 6. Age-specific profiles of per capita consumption and production: Japan, 1984-2004 Labor income 2004 Labor income 1999 Labor income 1994 Labor income 1989 Consumption 2004 Consumption 1999 Labor income 1984 Consumption 1994 Consumption 1999 Consumption 1984

34. Note: Adopted from the page 139 of An-Chi Tung (2011) “Consumption over the lifecycle: an international comparison,” in R. Lee and A. Mason (eds.) Population Aging and the Generational Economy: A Global Perspective: Edward Elgar and International Development Research Centre, pp. 136-160.

35. Relationship between young crossing age and duration of surplus Austria (2000) China (2002) South Korea (2000) Kenya (1994) France (2001) Uruguay (2006) Taiwan (2004) Slovenia (2004) Thailand (2004) Hungary (2005) Sweden (2003) Chile (1997) Spain (2000) US (2003) Finland (2004) Germany (2003) India (2004) Philippines (1999) Japan (2004) Costa Rica (2004) Indonesia (2005) Brazil (1996) Nigeria (2004) Mexico (2004) Senegal (2005) 20 25 30 35 40 45 50 55 60 65 Age China: Young crossing age:21 years oldDuration of surplus:39 years Mexico: Young crossing age:32 years oldDuration of surplus:17 years

36. Changing per capita lifecycle deficit in Japan, 1984-2004

37. Japan 1984

38. Japan 1989

39. Japan 1994

40. Japan 1999

41. Japan 2004

42. Thailand 2004 China 2002 Japan 2004 Republic of Korea 2005

43. Impact of Population Aging:from per capita to total population The case of Japan

44. Japan 1984

45. Japan 1989

46. Japan 1994

47. Japan 1999

48. Japan 2004

49. Now, let us look at two types of intergenerational Transfers:●Public intergenerational transfers●Private intergenerational transfers

50. Japan 2004 22 30 61 77